Shareholders get jumpy, but JB Hi-Fi stands firm on whitegoods plan

Colin Kruger

JB HI-FI chief executive Terry Smart was forced to reassure the market that all is well at the retailer after investors reacted badly to the news it was entering the whitegoods market in competition with the likes of Harvey Norman.

JB Hi-Fi shares dropped as much as 7.8 per cent in trading on Wednesday, before closing 59¢ lower at $10.10, after the company said it planned to bring its low-cost business model to the homewares market and offer whitegoods, cooking, and small appliances.

''I guess in hindsight what people have read into this is that it signals concerns from us in the broader JB business, which is not the case,'' Mr Smart told BusinessDay.

''This is just another opportunity - a $4 billion market - it's worth us exploring and taking a look at.''

Mr Smart said the company's core business still had a ''significant amount of growth ahead of us as we continue our store rollout program''.

JB Hi-Fi already operates in the whitegoods area through what remains of the Clive Anthony stores it acquired in 2004.

The company was considering an exit from the business, with Mr Smart describing the Clive Anthony brand as ''tarnished'', but decided there could be a chance to leverage off the JB Hi-Fi brand instead.

Also driving the company's interest was consolidation in the home appliances category ''as companies with less efficient and higher cost bases struggle to remain relevant and competitive''.

The company's low cost business model meant it was ''well positioned to take advantage of this opportunity''. JB Hi-Fi has already begun testing the whitegoods concept at four converted homemaker centre stores in Queensland which have been rebranded JB Hi-Fi Home.

Two more stores will follow in the new year.

The company described the test as a ''low-risk and measured trial'' with minimal capital expenditure.

If successful, the concept will be implemented at other sites nationally where it can offer the full range of JB Hi-Fi products plus whitegoods.

The number of potential locations will be dependent on the outcome of the trial, the company said.

''If it works, the prize is significant,'' Mr Smart said

The strategy will pitch JB Hi-Fi more directly against Gerry Harvey's retail operation, Harvey Norman, which has backed itself to remain the last man standing as rivals go out of business.

Harvey Norman has refocused its business on white goods and homewares in response to the fierce competition and double digit price deflation in electronics.

This drove a 20 per cent drop in the company's first quarter earnings and a double-digit fall in sales revenue.

JB Hi-Fi has not been immune either. In August the company announced underlying net profit fell 22.1 per cent to $104.6 million - its first fall in underlying earnings since listing in 2003.